M1 is a measure of what?

M1 is a key indicator in the measurement of a country's money supply and primarily consists of the most liquid forms of money. The correct answer identifies M1 as including cash and funds held in demand deposit accounts (DDAs). This definition reflects the components of M1, which are essential for understanding the highly liquid nature of these assets.

Cash includes physical currency such as coins and paper money that are in circulation. Demand deposit accounts are checking accounts that allow for deposits and withdrawals at will, making these funds readily accessible. This liquidity is what sets M1 apart from broader definitions of money supply, like M2, which encompasses a wider range of financial assets.

Understanding this distinction is crucial for analyzing monetary policy and economic conditions, as M1 provides insight into the money supply that's immediately available for spending in the economy.